Hermès slip sharpens focus on its fragile premium

LVMH Moet Hennessy Louis Vuitton SE

15/04/2026 12:26

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Yawen Chen

LONDON, April 15 (Reuters Breakingviews) - Hermès' HRMS.PA scarcity value is in question. The $200 billion maker of exclusive Birkin bags saw first-quarter sales grow 6% year-on-year, below analyst expectations and the 10% seen in the previous three months. Even after Wednesday's 10% share slump, the French group looks exposed.

At roughly 40 times 2026 earnings, Hermès is miles above the sector’s 23 times average, as estimated by JPMorgan. That's because Birkin bags are sufficiently fancy to command $10,000 price tags, and waiting lists. But it's also because investors assume this sweet spot can support much higher long-term growth than rivals like LVMH LVMH.PA and Kering PRTP.PA.

Analysts expect Hermès' free cash flow to rise from $5 billion this year to $9 billion by 2030, according to forecasts compiled by Visible Alpha. Discounting each year's figure using the company's 8% weighted average cost of capital, as estimated by JPMorgan, the implied value of those near-term flows is $29 billion. Deduct that sum from the company's $208 billion enterprise value, and Hermès’s business from 2030 onwards - its "terminal value" - comes to $179 billion today, or $264 billion in 2030 dollars using the same 8% discount rate. The long-term implied annual growth rate after 2030 that fits these various numbers together is 4.6%, according to Breakingviews calculations.

That’s high. The average for Hermès' main luxury rivals LVMH, Kering, and Richemont CFR.S is just 1.3%, Breakingviews estimates. The difference means nearly 90% of its value today is tied to post-2030 assumptions of perpetually strong growth, compared with more like 75% for its rivals. Had the long-term growth rate dropped to what investors are penciling in for LVMH, Hermès’s valuation would need to be 40% lower.

This fragility may explain why Hermès investors are spooked by anything other than perfection. In the first quarter, the company delivered far from that. Year-on-year growth in Asia-Pacific excluding Japan - nearly half of global sales and weighted to China - slowed from 8% in the previous quarter to just 2%. That's bad for a group whose valuation leans heavily on the idea of steady expansion in the People’s Republic. It's also an unflattering contrast with French peer LVMH, home to brands like Louis Vuitton and Dior, whose Asia business grew 7% in the first quarter - its strongest showing since 2023.

It’s premature to say Hermès has lost its edge. But a still-princely valuation is supported by the idea that it's immune to Chinese luxury consumers with less pricing power paring back spending. If that's changing and its long-term growth rate needs to plummet, the risk is its valuation heads in the same direction.

Follow Yawen Chen on Bluesky and LinkedIn.

CONTEXT NEWS

French luxury group Hermès said on April 15 that overall sales of products including Birkin and Kelly bags, silk scarves and perfume rose by 6% at constant exchange rates in the first quarter from the same period a year earlier, lower than a Visible Alpha analyst consensus of 7% growth.

Sales in Asia excluding Japan rose 2% to 1.9 billion euros in the same period, while the Middle East region fell 6% to 160 million euros.

“In the medium-term, despite the economic, geopolitical and monetary uncertainties around the world, the group confirms an ambitious goal for revenue growth at constant exchange rates,” Hermès said in a statement.

The group’s shares fell 14% at market open on April 15. They were down 8% as of 0912 GMT.

Hermès enjoys a valuation premium to most peers https://www.reuters.com/graphics/BRV-BRV/klvylbdelpg/chart.png

(Editing by George Hay; Production by Shrabani Chakraborty)

((For previous columns by the author, Reuters customers can click on CHEN/yawen.chen@thomsonreuters.com))